ITO-2(2)(1), MUMBAI V. INNOVATIVE INSURANCE SERVICES PVT. LTD., MUMBAI

ITA 2821/MUM/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9893 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 12-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 15-04-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE; FACTS OF CASE ON FACTS
• Keywords: Question of law
• Section: 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI G. S. PANNU , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 2821 / MUM/ 20 1 6 ( / ASSESSMENT YEAR: 201 2 - 13 ) ITO - 2(2)(1) ROOM NO.549, 5 TH FLOOR, AAY AKAR BHAVAN, M.K. ROAD, CHURCHGATE, MUMBAI - 400020 . / VS. INNOVATIVE INSURANCE SERVICE P. LTD., MANEK MAHAL, 6 TH FLOOR, 90, VEER NARIMAN ROAD, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AAGCS 9243 N ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 19 .1 2 .2017 / DATE OF PRONOUNCEMENT : 07. 03 . 2 018 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 22 .0 1 .20 16 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5 MUMBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO THE AY.20 12 - 13 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE INTEREST EXPENDITURE OF REVENUE BY: S HRI RAJESH KUMAR YADAV (DR) ASSESSEE BY : SHRI JITENDRA SANGHAVI & AMIT KHATIWALA (AR) ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 2 R S.1,95,40,721/ - ON THE GROUND THAT THERE IS DIRECT NEXUS BETWEEN THE INTEREST EXPENDITURE AND COMPENSATION RECEIVED BY THE ASSESSEE. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E F ILED ITS R ETURN OF INCOME ON 29 .09.201 2 DECLARING TOTAL INCOME T O T HE TUNE OF RS. NIL FOR THE A.Y. 2012 - 13 . THE RETURN WAS PROCESSED U/S 143(1) OF THE I.T. ACT, 1961 ON 2 2.02.2013 ACCEPTING THE RETURN OF INCOME FILED. T HE CASE WAS SELECTED FOR SCRUTINY UNDER CASS. THEREAFTER, THE NOTICE U/S 143(2) OF THE ACT DATED 06.08.2 013 WAS ISSUED AND SERVED UPON THE ASSESSEE ON 08.08.2013. THEREAFTER, THE NOTICE U/S 142(1) OF THE I.T. ACT, 1961 DATED 02.05.2014 WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS AS INSURANCE CONSULTANT, REINSURAN CE CONSULTANTS AND PROVIDING RELATED SERVICES TO CLIENTS. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE COMPANY DID NOT EARN ANY INCOME FROM THE BUSINESS ACTIVITY BUT ONLY SHOWED INCOME FROM OTHER SOURCES AT RS 17,600,000/ - AND CLAIMED EXPENSES WITH REG ARD TO FINANCE COST OF RS.27,025,578/ - AND OTHER EXPENSES OF RS.40,896/ - AND DECLARED LOSS OF RS.9,466,474/ - . THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 1,76,00,000/ - . FEELING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) W HO ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO 1 : - ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 3 4. WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE APPEAL HAS BEEN FILED 362 DAYS DEL AY . IN THE INTEREST OF JUSTICE AND IN VIEW OF THE FACTS THAT THE CASE IS REQUIRED TO BE DECIDED ON MERITS WE CONDONE THE DELAY . THE LD. REPRESENTATIVE OF THE DEPARTMENT HAS ARGUED THAT THE CLAIM OF THE INTEREST HAVE NO DIRECT NEXUS WITH EARNED INCOME OF TH E ASSESSEE, THEREFORE, THE INTEREST TO THE TUNE OF RS.2,70,25,578/ - HAS RIGHTLY DISALLOWED BY THE AO BUT THE CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE, THEREFORE, THE FINDING OF THE CIT(A) IS WRONG AGAINST LAW AND FACTS AND IS LIABLE TO BE SET A SIDE. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS REFUTED THE SAID CONTENTIONS AND PLACED RELIANCE UPON THE FINDING OF THE CIT(A). BEFORE GOING FURTHER WE DEEMED IT NECESSARY TO ADVERT THE FINDING OF THE CIT(A) ON RECORD: - I HA D CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IN THIS CASE THE APPELLANT HAD PURCHASED THE SHARES OF KUMAR URBAN DEVELOPMENT CORPORATION (KUDC) FOR COST OF RS.163.31 CRS. ON 30.09.2009. TO PURCHASE THESE SHARES THE APPELLANT HAD BORROWED MONEY FROM GOKULD HAM REAL ESATE AND NIHAR CONSTRUCTION P LTD. AND ALSO BORROWED ICD FROM SWAN CONSULTANTS FOR RS.110 CRS. THE APPELLANT SOLD THESE SHARES TO RIVERIO PROPERTIES & INVESTMENTS P. LTD. RPIPL IN A.Y. 2011 - 12. HOWEVER, RPIPL WAS ABLE TO GI V E ONLY RS.145.07 CRS. AND THE BALANCE AMOUNT OF RS.18.24 CR. WAS OUTSTANDING AND WAS RECEIVED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. THE FULL AND FINAL PAYMENT WAS DUE ON 20.02.2012 BUT SINCE RPIPL HAD MISSED THE DEADLINE IT AGREED TO PAY FOR COMPENSATION OF RS.1 .76 CRS. HERE THE APPELLANT STATES THAT THEY HAVE INCURRED EXPENDITURE DURING THE YEAR OF RS.2,70,25,578/ - FOR THE BORROWINGS EARLIER FOR PURCHASING SHARES FROM KUDC, CLAIMS ONLY INTEREST TO BE ALLOWED FOR FTS.1,95,40,721; - WHICH IS ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 4 INTEREST INCURRED FOR B ORROWING THE BALANCE AMOUNT. THIS INTEREST, EXPENDITURE IS EMINENT FOR PURCHASE OF SHARES FROM KUDC. SINCE PAYMENT FROM RPPL WAS NOT ENTIRELY RECEIVED IN TIME THE ASSESSES COULD NOT PAY THE BORROWINGS WHICH RESULTED M INCURRING OF INTEREST EXPENDITURE. TH E LOAN FROM NIHAR CONSTRUCTIONS WAS REPAID ON 15.01.20U OUT OF THE PART PAYMENT RECEIVED FROM RPIPL. ACCORD TO THE APPELLANT THE ENTIRE BORROWING WAS UTILIZED FOR THE PURCHASE OF KUDC HENCE THEY HAVE INCURRED EXPENDITURE FOR THIS BORROWING. THE AO DISALLO WED THIS INTEREST ON THE GROUND THAT ASSET WAS NOT IN EXISTENCE DURING THE YEAR AND THE APPELLANT HAD CLAIMED STCL IN THE EARLIER YEAR AND THERE WAS NO NEXUS BETWEEN INCOME AND INTEREST EXPENDITURE CLAIMED BY THE ASSESSES. HEN? AQ'S MAM CONTENTION IS THAT THEIR NO NEXUS BETWEEN THE INTEREST AND THE INCOME HENCE INTEREST EXPENDITURE WAS DISALLOWED AND ALSO THERE WAS NO EXISTENCE OF ASSETS HENCE CLAIM OF THE INTEREST WAS DISALLOWED. 6. IDENTICAL ISSUE HAS ARISEN IN BOMBAY HIGH COURT IN THE CASE OF GT V /S DSRASHAV - CO (SUPRA) IN WHICH IT IS HELD AS UNDER - '11. IN OUR VIEW, AFTER THIS AUTHORITATIVE PRONOUNCEMENT BY THE HONBLE SUPREME COURT, THERE IS NO SCOPE FOR ANY OTHER CONSTRUCTION AND PARTICULAR AS SUGGESTED BY MR. GUPTA WE ARE OF THE OPINION THAT THIS JUDGEMENT O/ THE HONBLE(E SUPREME COURT ANSWERS THE ISSUE OF INTERPRETATION OF SECTION 57(III) SQUARELY AND IN FAVOUR OF THE ASSESSES MORE SO, WHEN NO CONTRARY JUDGEMENT OF THE HON'BLE SUPREME COURT HAS BEEN BROUGHT TO OUR NOTICE, THE ARGUMENT THAT T HIS JUDGEMENT HAS BEEN MISINTERPRETED AND MISREAD BY THE TRIBUNAL DOE* NOT COMMEND TO US. THE SUPREME COURT HAS HELD THAT THE WORDS IN SECTION 57(III) SPEAK OF PURPOSE OF THE EXPENDITURE AND THAT IS RELEVANT. THE ARGUMENT OF MR. GUPTA FS THAT THE PURPOSE O F THE EXPENDITURE AND IN THE PRESENT CASE HAS NO RELATION WITH THE INCOME THAT FS TO BE EVENTUALLY EARNED FROM THE MSRDS BONDS. THAT THE BONDS WERE DISPOSED OF MEANS THE INCOME BY WAY OF INTEREST THEREON WOULD NOT ACCRUE ANY FORMER. THEREFORE, THE DEDUCTI ON BY INTEREST ON BORROWINGS AND WHICH J'S STATED TO BE A LIABILITY WAS NO PERMISSIBLE DEDUCTION. THAT IS THE PRECISE ARGUMENT WHICH HAS BEEN DEALT ' AND THE HON'BLE SUPREME COURT HAS CLARIFIED THAT THE ARGUMENTS WHICH BEEN DEALT ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 5 WIT H AND THE HON'BLE SUPREME COURT HAS CLARIFIED THAT ARGUMENT OF THE REVENUE THAT THE EXPENDITURE WOULD DISQUALIFY /OR DEDUCTED ONLY NO INCOME RESULTS /RAM SUCH EXPENDITURE IN A PARTICULAR YEAR BUT // THERE IS SOME INCOME HOWSOEVE R SMALL OR EXPENDITURE WOULD BE ELIGIBLE FOR DEDUCTION. THE HON'BLE SUPREME COURT ON IN THAT REGARD AND HELD THAT WHEN O P & L ACCOUNT? S CC RESPECT O/ ANY SOURCE OF INCOME WHAT IS ALLOWED BY THE STATUTE AS PROPER EXPENDITURE WOULD BE DEBITED AS ON OUT GOING AND INCOME WOULD BE CREDIT G RECEIPT AND THE RESULTING INCOME OR TOSS WOULD BE DETERMINED. THE HE SUPREME COURT THAT HOW EXPENDITURE WHICH 15 OTHERWISE A P EXPENDITURE CAN CEASE TO BE SUCH MERELY BECAUSE THERE IS NO RECEIVED INCOME, HAS NOT BEEN EXPLAINED BY THE REVENUE AT ALT. IT IS CIRCUMSTANCES THE HONBLES SUPREME COURT HEJA 1 THAT SECTION 57(III) DOES NOT REQUIRE THAT THE PURPOSE MUST BE FULFILLED SO AS TO BE EXPENDITURE OUT FOR DEDUCTION. THE LANGUAGE OF THE 5EAION DOES NO T ADMIT OF A CONSTRUCTION THAT THE EXPENDITURE SHALL BE DEBITED ONLY IF ANY INCOME IS MODE OR EARNED. 4. AS REGARDS QUESTION (B) THE AC HAS DISALLOWED THE INTEREST AND J CHARGES OF RS.17,84,036!* IN RESPECT O/ THE LOANS BORROWED THE ASSESS CLAIMED A DEDUCTION U/S 57FJ'RIJ OF THE ACT. THE AO DISAVOWED THIS ARM THE GROUND THAT THE ASSESSEE HAD NOT JUSTIFIED THE CONDITIONS OF C DEDUCTIONS U/S 57FIM'; R.W.S 58 OF THE ACT BY HOLDING THAT THE EXPENDITI NOT PROVED TO BE RELATED TO THE PURPOSE OF EARNING IN COME. HE HELD THA ACTIVITY O/ THE ASSESSEE WAS EARNING ERF PROFITS BY SELLING SHARES IN MARKET ANA 1 THE DIVIDEND INCOME HAD ACCRUED AS A BYPRODUCT, THE EXPENDITURE WAS NOT INCURRED WHOLLY FOR THE PURPOSE OF THE EARNING INCOME. IN THE ASSESSEES APPEAL, CI T(A) OBSERVED THAT THE AO HAD NOT DISPUTED THE PURCHASE SHARES AS A PART OF INVESTMENT, THE INVESTMENT IN SHARES WAS TO THE TUNE OF RS.72 LACS AS DISEASED IN THE BALANCE SHEET A/ THE ASSESSES. THE ASSESSEE HAD ALSO RECEIVED INCOME BY WAY OF DIVIDENDS ON T HESE SHARES THIS INCOME ALONG WITH FINANCE CHARGES AND THE INTEREST WAS SHOWN AS INCOME FROM OTHER SOURCES. THE INTEREST WAS PAID ON LOANS OBTAINED /OR MAKING THESE INVESTMENTS ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 6 IN SHARES AND RELYING UPON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN TH E CASE OF SETH R DALMIA VS. CIT [1977) 110 ITR 644 WHERE IF WAS HELD THAT THE NEXUS BETWEEN THE EXPENDITURE AND THE INCOME NEED NOT BE DIRECT AND EVEN ON INDIRECT CONNECTION COULD PROVE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED, HE HELD THAT THE EXPENDITURE BE DEDUCTIBLE. HE FURTHER HELD THAT THE QUANTUM OF THE DIVIDEND EARNED HAD NOTHING TO DO WITH THE QUANTUM OF INTEREST MADE UNDER SEC 57(III) O, THE ACT, IN SUCH CIRCUMSTANCES, THE CIT(A) AVOWED THE FINANCE EXPENDITURE A RS. 17.84 .036/ - AS A DEDUCTION U/S 57(III) OF THE ACT. THE FINDING THAT THE AFORESAID AMOUNT REPRESENTED PAYMENT OF INTEREST AND FINANCE CHARGES REACTION TO GENUINE LOANS HAS BEEN CONFIRMED BY THE JL4T AND THIS IS ALSO QUESTION OF /ACT. IN THESE CIRCUMSTANCES THE QUESTION OF LAW AS FRAMED ALSO DOES NOT RISE,' WHEN WE CONSIDER THE ABOVE DECISION OF THE BOMB AY HIGH COURT IT CAN BE SEEN MSRTC BONDS WERE PURCHASED AND THEY WERE ALSO SOLD AND INCURRED SHORT TERM CAPITAL LOSS. THE APPELLANT HAD CLAIMED INTEREST EXPENDITU RE. THE AO HAD DISALLOWED STATING THAT NO ASSET WAS EXISTING AND THERE WAS NO INCOME TO ALLOW THE SAME. HOWEVER, BOMBAY HIGH COURT REJECTED THE AQ'S ARGUMENT AND ALLOWED THE INTER EXPENDITURE AND FURTHER STATED THAT EACH AND EVERY INTEREST EXPENDITURE M AY NOT RESULT IN INCOME BUT INTEREST EXPENDITURE IS ALLOWED U/S 57(III) OF THE ACT. 5 . ON APPRAI SAL OF THE ABOVE MENTIONED FINDING, WE NOTICED THAT THE APPELLANT PURCHA SED THE SHARES OF KUMAR URBAN DEVELOPMENT CORPORATION (KU DC) FOR COST OF RS.163.31 CRS O N 30.09.2009 . F OR PURCHASING THE SAID SHARES , THE APPELLANT BORROWED MONEY FROM GOKULDHAM REAL ESTATE AND NIHAR CONSTRUCTIONS P. LTD AND ALSO BORROWED ICD FROM SWAN CONSULTANTS FOR RS.110 CRS. THE APPELLANT SOLD THESE SHARES TO RIVERIO PROPERTIES & INVEST MENTS P. LTD (RPIPL) IN A.Y. 2011 - 12. THE RIVERIO PROPERTIES & INVESTMENT P. LTD. ONLY ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 7 PAID A SUM OF RS.145.07 CRS. AND AMOUNT OF RS.18.24 CRORES WAS OUTSTANDING AND RECEIVED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. THE FULL AND FINAL PAYMENT WAS DUE ON 20.02.2012 BUT SINCE RPIPL FAILED TO PAY THE SAME AND AGREED TO PAY THE COMPENSATION TO THE TUNE OF RS.1.76 CRS. THE APPELLANT INCURRED THE EXPENDITURE DURING THE YEAR OF RS.2,70,25,578/ - FOR THE BORROWINGS MADE EARLIER FOR PURCHASING FROM SHAR ES FROM KUDC CLAIMS ONLY INTEREST TO BE ALLOWED FOR RS.1,95,40,721/ - WHICH IS THE INTEREST INCURRED FOR BORROWING THE BALANCE AMOUNT. THE PAYMENT WAS NOT MADE TO KUDC FROM RPIPL WELL IN TIME WHICH RESULTED INTEREST EXPENDITURE. THE LOAN FROM NIHAR CONSTRUC TIONS WAS REPAID ON 15.01.2011 OUT OF THE PART PAYMENT RECEIVED FROM RPIPL. THE APPELLANT UTILIZED ENTIRE BORROWING FOR THE PURCHASE OF SHARES OF KUDC AND INCURRED EXPENDITURE FOR THIS BORROWING. THE ASSESSING OFFIC ER DISALLOWED THE CLAIM OF THE ASSESSEE F INDING NO NEXUS BETWEEN THE INTEREST AND THE INCOME HENCE THE INTEREST EXPENDITURE WAS DISALLOWED. THE INTEREST EXPENDITURE IS DIRECTLY RELATED TO THE COMPENSATION RECEIVED AS INCOME BY THE APPELLANT SO THERE IS A DIRECT NEXUS BETWEEN THE INTEREST EXPENDIT URE AND COMPENSATION RECEIVED. THE CLAIM OF THE ASSESSEE WAS ALLOWED ON THE BASIS OF THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. DARASHAW CO P. LTD. 49 TAXMAN.COM 143 (BOM). THE FINDING HAS BEEN GIVEN ABOVE . T HE FACTS AND CIRCUMSTANCES ARE NOT DISTINGUISHABLE AT THIS STAGE. NO DISTINGUISHABLE MATERIAL HAS BEEN PLACED ON RECORD. I N VIEW OF THE SAID ITA. NO. 2821 M/20 16 A.Y. 201 2 - 13 8 CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECTLY WHICH IS NOT LIABLE TO BE INTERFERE WITH AT THIS APP ELLATE STAGE. 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HERE BY ORDERED TO BE DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 07. 03 . 2018 . SD/ - SD/ - ( G. S. PANNU ) (AMARJIT SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 07. 03 . 2018 V.P. SINGH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI